A temporary relaxation of the requirements to qualify for the Public Service Loan Forgiveness program could save millions of borrowers billions of dollars—but few of those borrowers have so far accessed the potential benefits.

The situation offers an insight into the challenges of the student debt issue. Pragmatic solutions seem to gain little traction on social media and in the news.

The loan-forgiveness fights have attracted so much attention, and dragged on so bitterly for so long, in part because they inspire a deep ideological, almost religious, fervor. Demonstrators hold signs talking about a “jubilee” or debate the fairness, or unfairness, of transfers between people whose parents saved for college (or inherited enough to pay for it), those who couldn’t afford to go at all, and those who chose to finance the education with loans.

The reality of the Public Service Loan Forgiveness program is not an ideological or philosophical question of the introduction of a new program. It is, instead, more about nuts-and-bolts execution of an existing policy—in this case, a program that, in 2022, is still inviting applicants to transmit documents by fax and postal mail.

For teachers—as well as a broad array of public-service workers including social workers, firefighters, and many healthcare workers—the Public Service Loan Forgiveness program offers potential full forgiveness of student loans for those with a decade of service and loan payments. For most potentially eligible workers, however, the benefits have failed to materialize. Communication about program requirements was limited, producing confusion about which loans and payments qualified, while loan servicers provided misleading guidance and kept inadequate records.

A Department of Education administrative waiver set to expire on October 31, 2022, allows for massive retroactive adjustments in qualification requirements, making many public-service workers eligible for full forgiveness and, in some cases, refunds.

Twenty-two percent of potential Public Service Loan Forgiveness recipients are teachers, making them the single largest occupational group eligible for waivers. Overall, teachers could expect substantial debt relief, with overall balances falling to $22.4 billion from an estimated $55.1 billion. Individual eligible teachers could expect to receive an average of about$38,151 in relief.

Public Service Loan Forgiveness benefits are not automatic, though. Unless borrowers are active readers of the Department of Education press releases, they may not even know about the administrative changes that expand eligibility. Less than five percent of borrowers estimated to be eligible for immediate Public Service Loan Forgiveness relief have navigated the application process so far. The lack of take-up is attributable both to lack of information and to the administrative obstacles imposed on those who do find out about the forgiveness opportunity.

A Primer on Loan Forgiveness for Teachers and Other Public-Service Workers

Federal policy has a long and uneven track record of using financial aid as a tool to induce college-educated workers to enter the teaching force and other careers deemed to produce public benefits. The precedent dates back nearly 65 years to the National Defense Education Act, in which Congress offered partial forgiveness of federal student loans for those who pursued teaching as an occupation. Teaching has been singled out many times in federal and state policies: the Teacher Loan Forgiveness program started in 1998, and a number of state initiatives provide limited loan relief targeted to those working in high-need fields or low-income schools.

But loan-forgiveness policies targeted to teachers pale in comparison to the Public Service Loan Forgiveness program, passed in 2007. Introduced as part of the College Cost Reduction and Access Act in 2007, the program offered full forgiveness of federal student loans for those employed in “public service” for ten years who make 120 “qualifying” monthly payments over these years.

With about 25 percent of the labor force employed in the public and nonprofit sectors, the Public Service Loan Forgiveness program would have been expected to provide relief to a substantial number of borrowers with long-standing public service careers. While teachers are the largest identifiable occupation among public-service workers, the eligibility definition is very broad and includes all employees of governments and nonprofit organizations. Thus, firefighters, police officers, social workers, many healthcare workers, and a full range of support staff employed by local governments and school districts are eligible, including the school district employees serving as bus drivers or cafeteria workers.

While a few of the occupations under this heading are high paying, such as surgeons at public hospitals or business school professors at universities, the majority of public-service jobs offer middle-income wages.

Criticism of the Public Service Loan Forgiveness program has been longstanding. Analysts have questioned whether loan forgiveness was the best way to deliver incentives for entering public service. Because Public Service Loan Forgiveness had no limit, many raised concerns about whether the full-forgiveness provisions for both graduate and undergraduate borrowing would contribute to excessive borrowing and skyrocketing tuition costs (See “The Tangled World of Teacher Debt,” features, Fall 2017).

When the program hit the ten-year mark in 2017, even deeper dysfunction became evident. Not only was the program explained poorly to borrowers, but the administration of the program and record keeping by loan servicers led to misleading guidance and the miscounting of qualifying payments.

One problem faced by teachers from the get-go is that the policy was poorly integrated with other education-specific policies. For those also participating in Teacher Loan Forgiveness, for example, the five years of qualifying service for that program did not count toward the ten-year employment requirement for Public Service Loan Forgiveness.

But, on whole, the Public Service Loan Forgiveness program should have been a potential boon for teachers at a time when overall costs of undergraduate and graduate education were increasing. Jason Delisle and Alexander Holt document that, by 2012, more than two thirds of entering teachers held debt and the average loan balances for those with a graduate degree neared $50,000, up from about $26,000 in 2000.

Still, for teachers, along with the larger pool of public-service workers, the initial promise of Public Service Loan Forgiveness was not fulfilled. By 2022, at least five annual cohorts of teachers should have received full loan forgiveness, but the evidence suggests few actually have. In 2017, the first year of eligibility for forgiveness, 96 borrowers claimed benefits, and by the end of 2018, 338 had. By the start of 2022, 84,163 had received benefits—still just a fraction of the number that should have been eligible.

What Went Wrong?

Buckle up: Federal student-loan policy is complicated. Two decades of patchwork measures have produced a mess for which no single administration is to blame.

One issue is that that the rules of the game have changed many times over the past 20 years. There are no fewer than four different Income-Driven Repayment options, which tie monthly payments to income, as well as other repayment options, like Graduated and Extended repayment plans. Rather than taking these programs offline as legislators or administrators wish to add new program features, old programs stay on the books and apply to different classes of borrowers.

Adding another layer of complication is that many loans issued before 2010 were under a guarantor system known as Federal Family Education Loans. Over the years, the federal government has also added new debt instruments, such as GradPlus and ParentPlus loans, to the baseline Stafford Direct Loans, which come in subsidized and unsubsidized versions.

Finally, because the Department of Education isn’t a financial services corporation, it has relied on a stable of servicers to carry out the functions of collection, assignment to payment plans, and recording of payments. These servicers have been unreliable at best.

When a miniscule number of borrowers had claimed benefits in the first year of the program, policymakers and advocates started to ask, “what went wrong?”

Among the failures of administration and communication:

• Those who had borrowed under the Federal Family Education Loans system did not realize they had to consolidate their loans to be eligible. The 2007 Public Service Loan Forgiveness authorizing language restricted qualifying payments to those on Federal Direct Loans. Thus, in the cohorts borrowing between 2007 and 2010, approximately 80 percent of loans would have required consolidation to achieve eligibility. By statute, borrowers with non-Direct loans could gain access to Public Service Loan Forgiveness by consolidating them into Direct Consolidation loans; however, any payments made prior to loan consolidation did not count towards Public Service Loan Forgiveness. Basic confusion among borrowers was often exacerbated by the failure of loan servicers to inform borrowers that their loans were ineligible or that pre-consolidation payments were ineligible.

• Borrowers needed to be in an Income-Driven Repayment plans for payments to count toward forgiveness. Borrowers faced informational barriers from servicers, as well as bureaucratic difficulties in reenrolling in income-driven repayment plans. And, because borrowers are required to “recertify” eligibility, there were often substantial delays which contributed to a lack of qualification for Public Service Loan Forgiveness and higher payments in general.

• Services often “steered” struggling borrowers to forbearance, rather than to the qualifying income-driven repayment plans. A report from the Consumer Financial Protection Bureau documented that loan servicers routinely failed to inform borrowers of repayment-plan requirements, despite indications that they were in public service.

In passing Temporary Expanded Public Service Loan Forgiveness, Congress mandated that, as long as borrowers met all other requirements, those using a Graduated Repayment Plan, an Extended Repayment Plan, a Consolidation Standard Repayment Plan, or a Consolidation Graduated Repayment Plan were eligible. This effort, while well-intentioned, did not lead to a substantially higher number of borrowers claiming benefits. Successive administrative guidance and waivers issued by the Department of Education in the last year (beginning in October 2021 and continuing through the spring of 2022) dramatically change eligibility, making nearly all borrowers with qualifying employment eligible.

How Does the Waiver Fix the Problems?

The waiver and related administrative changes make the following broad adjustments:

• Eligibility is expanded to prior payments on non-Direct Loans. Borrowers still need to consolidate to a Direct Loan before forgiveness, but they can receive retroactive credit for repayment made on other loans prior to this consolidation.

• Borrowers can receive retroactive credit for payment periods under the “wrong” repayment plan.

• Under an April 2022 administrative change, forbearance periods of 12 or more consecutive months or 36 or more cumulative months will count towards overall payment counts.

• Borrowers may now retroactively count periods of payment in which they were pursuing Teacher Loan Forgiveness or when payments were late or less than the amount due.

• Borrowers who completed 120 payments with a qualifying employer but are not employed with a qualifying employer at the time of their application or forgiveness may receive Public Service Loan Forgiveness.

Why Have There Been So Few Applications?

The “good intentions” of providing access to loan forgiveness retroactively through the waiver process have not overcome the administrative hurdles of government bureaucracy. The most glaring example is that the waiver application is a PDF form that requires “wet” signatures from both the borrower and their employer for employment certification. In a throwback to the prior century, many borrowers must submit their applications by fax or paper mail. Those with Federal Family Education Loans must also successfully consolidate those loans in addition to going through the waiver process.

Moreover, the public dialogue seems to be allowing passion to crowd out pragmatism. Increasing participation in the Public Service Loan Forgiveness program evokes little enthusiasm among those who populate Twitter and editorial pages. It’s true that the application is a hassle. Yet for those serious about relieving the burdens of student debt among working Americans, these waivers have for a limited time already cleared, if not paved, a path to full loan forgiveness for public-service workers.

The Public Service Loan Forgiveness waivers have the potential to be game changing, especially among those who most need the support. To date, those receiving forgiveness have had an average forgiveness amount of over $66,000, which is well above the average debt level held by all borrowers. This would suggest that very high-debt (and potentially high-income) individuals with the resources to seek financial guidance are completing applications. This “selection” into applying for the waivers is consistent with recent social-science evidence which suggests that “time tax” of administrative process is most onerous for those from the least advantaged groups.

Given the racial wealth gap and the particularly high student-loan balances for Black Americans, the distribution of potential relief merits note. Among public-service workers, Black borrowers hold more student loan debt and can expect somewhat higher levels of relief than whites, with mean relief expected to be $47,903 for Black borrowers and $38,840 for white borrowers employed in the public sector. If all eligible public-service workers took up benefits, the student debt burden for Black Americans would decline appreciably from $114.9 billion to $83.3 billion. Considered in the context of debt per capita, the black-white gap in student loan debt would be predicted to drop from $1,575 to about $868 if all eligible recipients took up benefits. Thus, while the Public Service Loan Forgiveness program (and the associated waivers) are race neutral in design, they have the potential to narrow racial gaps in student debt.

The stakes are high and pressing. Public Service Loan Forgiveness could provide immediate relief for millions of borrowers. Achieving these gains requires immediate investment (before the expiration of the waivers) and the collaboration among state and local governments, employers, researchers, and those who support policy innovation to increase take-up and reduce administrative burdens.

The short-term question about the lack of participation in the Public Service Loan Forgiveness waivers does little to address long-term questions about student loans and higher education finance, however. There is good reason for concern about unconstrained potential loan forgiveness. The Public Service Loan Forgiveness program may be contributing to related problems of overborrowing, moral hazard, and tuition inflation, which span all of postsecondary education. The function of the Public Service Loan Forgiveness waiver is only “retroactive adjustments” for the substantial administrative shortfalls in the original implementation of the program; left unaddressed are the design flaws in federal student lending more generally.

Sarah Turner is professor of education and economics at the University of Virginia.

For more, please see “The Top 20 Education Next Articles of 2023.”